The coronavirus pandemic brought a screeching halt to business activity. Business owners have been reviewing insurance policies to find out whether business interruption insurance covers losses from COVID-19.
Business interruption insurance is a type of insurance that covers losses from direct business interruptions. The policy may cover payroll, rent, loan payments and utilities stemming from certain losses specified in the policy. The interruption, however, must be the result of “direct, physical loss.”
Whether an individual policy covers losses is not clear. First, it depends on the language of the policy. Some policies may include language which specifically covers losses resulting from pandemics or infectious diseases. What if it does not? New developments are occurring in the legislatures and courts every week.
New Jersey was the first state to take up legislation which would require insurance companies to cover losses stemming from the coronavirus even if the insurance companies had to ignore virus exclusions. That bill was pulled.
Despite the bill being pulled from consideration by the New Jersey legislature, Ohio and Massachusetts followed suit in considering legislation which requires insurance companies to insure business interruption losses due to the virus. The list of states introducing legislation continues to grow. Now, New York has introduced legislation addressing the coverage concerns of business interruption insurance. There is no news on whether Pennsylvania is considering similar legislation.
In addition to state legislatures responding to the pandemic as it relates to business interruption, courts will also be forced to respond to the dilemma. A case in Louisiana was one of the first lawsuits against an insurance company seeking a declaration from the court that direct physical loss or even a civil authority shutdown extends to loss due to the coronavirus. Another suit is out of California by the renowned owner of the French Laundry and Per Se.
There is no bright-line test as to what constitutes “direct, physical loss.” The loss may be obvious when a fire occurs or lightning has struck; however, not all situations are cut and dry. Whether the coronavirus caused “direct, physical loss” will be up for interpretation. In fact, “direct, physical loss” has been the subject of litigation well before the coronavirus made its debut.
There are cases across the country where contaminating conditions have been recognized as “direct, physical loss”. For example, there are cases involving asbestos contamination, e. coli contamination, release of ammonia and seeping gasoline fumes. Policy holders may argue that the coronavirus is similar to these types of cases where courts found a “direct physical loss.” Insurance carriers will argue that there is no “direct, physical loss,” or that there is no coverage for loss due to a virus or pandemic. How can businesses claim physical damage without proof that the virus existed on the property? Court cases challenging coverage will continue to grow. The early decisions will set precedent and impact cases around the country.
In addition to business interruption coverage, businesses should look to see whether there is other coverage for their loss, including civil authority, event cancellation, pollution or contamination policies.
